What is IKEA doing in China?

On Thursday, 6 December Swedish furniture and home retailer IKEA Group announced that it will invest more than RMB 8 billion to build a large complex in Shanghai. The complex includes a shopping mall and five office buildings. It will measure over 430,000 m2 and is IKEA’s first project of this kind worldwide.

According to Chinese media reports, the shopping centre is scheduled to open in 2022. IKEA Shanghai will operate the shopping centre. DING Hui, President of the IKEA Shopping Centre in Shanghai, expressed in an interview his believe that China might become the testing ground for new IKEA business strategies before they are exported to other parts of the world.

The five office buildings IKEA plans to build in the Shanghai project will cover an area of 60,000 m2, 3 will be used for IKEA’s 3,000 employees in China, the other two will be leased to large and medium-sized enterprises.

This is part of IKEA’s attempt to strategically transform itself. “We are currently have several strategic transformation projects ongoing in various markets around the world. We want to pay more attention to digitalisation, online and offline integration,” said Anna Ku, President of IKEA Retail China in an interview with the Chinese online magazine the entrepreneur.

Is IKEA forced to transform?

Earlier in November this year, IKEA announced “the biggest strategic transformation in the company’s history” within two years the group aims to lay off 7,500 employees while hiring 11,500 new e-commerce staff.

CAO Lei, director of the China E-Commerce Research Center, said that IKEA’s transformation is tied to e-commerce and the Internet. If IKEA wants to further sustain growth the group has no choice but to embrace the internet.

However, YANG Fan, Public Relations Manager at IKEA China, the lay-offs earlier this year were not connected to IKEA’s push to transform itself. “E-commerce is part of IKEA’s future and an important milestone in IKEA’s development. IKEA’s transformation is focused on providing a more efficient and customer-focused shopping experience.

Taking the E-Commerce Road

According to data released by IKEA, IKEA’s sales exceeded RMB 14.7 billion in August 2018, an increase of 9.3%. In China IKEA sustained a growth of 19.4%. In October this year, IKEA opened an online shopping mall in 149 cities across China, providing online shopping services and launching a WeChat App. Even though IKEA is currently focused on building their own e-commerce platform, Anna Ku does not rule out cooperation with other third-party e-commerce platforms.

“IKEA is late to the e-commerce business, especially in China,” said Anna Ku. This causes difficulties for IKEA as Chinese consumers have high standards for e-commerce experiences. IKEA has to build both the IT and distribution infrastructure to cater to Chinese standards, which is time consuming.

In addition, IKEA has also started to cooperate with other Chinese technology companies. Xiao Dian, General Manager of Xiaomi’s IoT platform, announced in November that it will work with IKEA to build integrated home furnishing. IKEA has scheduled the release of a full range of intelligent lighting products which will be connected to Xiaomi’s IoT platform, marking not only the first cooperation with a Chinese technology company but also IKEA’s first smart home furnishing.

IKEA has become a staple for affordable, modern furnishing and as the group continues its strategic transformation, not only European analysts will be closely watching but also their Chinese counterparts.

How smart parking is tackling China’s parking crisis

In 2018 that the number of cars on China’s roads exceeds 385 million, revealed a study published by Tsinghua University. With only an estimated 800,000 parking lots and 30 million of-street parking spaces, China is facing a parking crisis. There is also a strong uneven distribution of those parking spaces. On average first and second tier cities have 0.8 parking spaces available per car, with the availability in small and medium-sized city dropping as low as 0.5 parking spaces per car.

Furthermore, simply finding a parking space where it is needed is nearly impossible. Parking in those spaces can also be difficult for novice drivers, with many being extremely small. Once a parking space is found, drivers are faced with fees that are not transparent and very high.

Inefficient parking also significantly impacts traffic flow. Statistics show that 30% of traffic congestion problems are caused by parking difficulties, and 48% of vehicles need to wait in line when entering and leaving the parking lot.

With the number of cars on China’s roads steadily increasing, parking is becoming a top priority.

Smart parking is becoming the “new favourite” industry

The commercial value of the parking industry is enormous. China has an estimated parking gap of 60 million. The China Industrial Research Institute predicts that the smart parking industry will reach a market size of RMB 10 trillion in the future. In addition, there are data showing that the market size of smart parking in the first half of 2018 has exceeded 10 billion globally. Currently the smart parking industry has a scale of USD 26 billion, growing at a rate of 18%.

Smart parking can use parking data in various regions, and allocate parking spaces based on availability, thus improving parking space utilisation.  The system allows users to reserve and find parking spaces with the ease of their mobile phones. Furthermore smart parking creates a more transparent and fair pricing system. Payments can be made online based on a clear pricing structure. The system is self-managing, therefore further reducing parking costs.

Smart parking – still not that smart

Work on smart parking systems started in early 2014. Although the market reached a global scale of 10 billion, the system has not been applied on a large scale. In China coverage currently reaches only around 7%.

The reason that smart parking is not developing as fast as initially hoped for is because smart parking is not yet smart enough. The industry is currently highly fragmented with 38 different enterprises developing systems independent from each other. Currently no public data sharing platform exists. Furthermore, developing the necessary infrastructure is incurring high costs. Smart parking requires the use of wireless communication technology, mobile technology, GPS positioning technology, etc. In addition, engineering integration costs are high.

China Report Network data shows that 800,000 parking lots nationwide can be considered for smart parking in the next 5 years. The cost of converting a single parking lot is about RMB 100,000, making the overall expected costs at RMB 160 billion.

According to data released by Zhiyan Consulting Network, the number of car ownership in China is expected to reach 280 million by 2020 and 360 million by 2025. In 2017, the demand for parking spaces reached 270 million. In 2018, the demand for parking spaces will be nearly 300 million, with an annual growth rate of 11%. By 2025, parking demand will reach 600 million. Currently only 250 million parking spaces exist. Although smart parking can significantly increase utilisation rate of existing parking spaces, it will not be able to resolve the fundamental issue – insufficient parking spaces for increasing numbers of cars.